KCB and Commercial Bank of Africa face consumer class-action intended to compel the lenders to cut their M-Pesa based loans in line with the new interest rate caps which took effect on Wednesday.

The two banks have insisted that their M-Pesa-linked mobile loans are not subject to the new law, which limits maximum interest chargeable on loans to not more than four per cent above the Central Bank Rate.

The Consumers Federation of Kenya (Cofek) has given the two lenders a 48-hour notice to cut the interest rate payable on KCB M-Pesa and M-Shwari loans to a maximum of 14.5 per cent per annum or face court action.

Privately-owned CBA, which offers M-Shwari microloans, says it will continue levying a one-off 7.5 per cent fee on the loan amount; while KCB argues that mobile-based loans fall under the realm of microfinance.

The pro-consumer lobby is also piling pressure on Equity Bank, saying the lender’s decision to lock out overdue loans from the new capped rates is a “selfish and erroneous violation of the letter and spirit of the law.”

“CBA and KCB are in breach of provisions of the Banking Act, 2016, as they continue to manufacture excuses purporting that mobile phone based loans are exempt from the capping,” said the Cofek secretary-general Stephen Mutoro.

Comply with the law

“We demand that the said banks fully comply with the law within 48 hours failing which we will institute a class action suit,” Mr Mutoro said in a statement.

The Banking (Amendment) Act 2016, which commenced on Wednesday, sets the ceiling for lending rates at four percentage points above the benchmark rate; and sets the floor for deposit rates at 70 per cent above the base rate.

Equity Bank was the first lender to pull down interest rates charged on mobile phone-based loans, turning the spotlight on rivals such as CBA and KCB.Equity Bank chief executive James Mwangi said customers borrowing through mobile platform Eazzy loans will be charged at the maximum rate of 14.5 per cent per annum on a reducing balance, translating to about 0.65 per cent per month.

CBA yesterday sent out text messages to customers saying “loan facility fees remain unchanged at 7.5 per cent per loan.” However, the bank has increased interest paid on M-Shwari deposits to 7.35 per cent per annum.

The top-tier lender had disbursed a cumulative Sh40 billion through M-Shwari by the end of last year to 12.6 million customers.This indicates that the bank earned an estimated Sh3 billion from the product based on the flat fee charged.

KCB has argued that mobile loans are unique products that fall under micro lending and therefore stand outside the reach of the new law.

“The law does not speak about microfinance institutions at the moment and our mobile lending is currently a micro-business product in the industry,” KCB Group CEO Joshua Oigara said in a previous briefing.

KCB charges a flat interest rate of six per cent for 30-day loans, five per cent of 60-day and four per cent for three-month credit.

Equity Bank yesterday put out notices warning those with loan arrears that they will not benefit from the lower rates.

“It applies to all local currency credit facilities and existing ones contracted on or before September 13, 2016 whose performance is on schedule (loans without arrears),” said Equity Bank.